Measuring intellectual capital performance of Indian banks: A public and private sector comparison

Abstract

Purpose The purpose of this paper is to measure the intellectual capital performance of Indian banks and established a relationship between intellectual capital and return on assets (ROA). The paper also compared the intellectual capital performance of public sector and private sector banks. Design/methodology/approach This study is based on secondary data from the top 20 Indian banks. Ten banks were selected from each of the public and private sectors on the basis of paid-up equity capital. The analysis was made using the value-added intellectual coefficient, the coefficient of variation, exponential growth rates, trend analysis, Yule’s coefficient, the coefficient of correlation, the F-test and the t-test. Findings The study revealed that private sectors have performed relatively better regarding the creation of total information coefficient (IC). However, the ROA was still below the international benchmark of >1 percent. The major cause of the lower IC and the reduced ROA is disproportionate to the increase in capital employed and escalating non-performing assets in the Indian banking sector. Practical implications The study focussed on managers and identified the causes of lower performance. It proposed numerous strategies to improve the aggregate score of IC, which is closely related to bank profitability. Originality/value This is the first study to make a comparative analysis of intellectual capital performance in public and private sector banks in India and in addition to the traditional style of measuring sectoral performance. Further, the study employed new statistical tools, such as Yule’s coefficient of association, to establish the association between performance variables.

Keywords Performance, Intellectual capital, Indian banks